Valuing an estate for inheritance tax (IHT)

Importance and timing of valuations

The accuracy of the valuations is important because this ensures that sufficient tax is paid, preventing you from becoming personally liable to HMRC for underpaid tax. It also ensures that the estate is not paying too much tax, so that the beneficiaries receive the full sums they are due.

The timing of any valuation is vital, and there are specific considerations for different types of assets.

In regard to property, this needs to be valued as at the date of the deceased person’s death, not the date on which an estate agent is instructed, which could be several months afterwards. Otherwise, if the property has increased in value between the date of death and the date the valuation is obtained, an overpayment of tax could occur. Conversely, if the property has decreased in value, this may result in an underpayment.

For bank accounts, savings, and investments, you should not rely on statements received on or around the time of death. A true date-of-death valuation needs to be requested, to ensure that the figure includes interest accumulated but yet to be applied to the account, and which may not appear on a statement.

Different types of asset – key issues

In the case of property, the minimum requirement is to obtain three separate estate agents’ valuations of the property based on the open market value immediately before death. Where property is jointly owned there is some allowance for this, since a joint share in property is unlikely to be attractive to an open market purchaser. In such cases, the final probate valuation should be agreed with HMRC based on the valuation of the district valuer, who will value the property on HMRC’s behalf.

Where inheritance tax is payable, property contents and personal items should also be valued professionally. This should be carried out by an antique specialist to ensure that any particularly valuable items are not overlooked. Again, some allowances may apply to jointly owned items. For example, if a married couple jointly owns a set solid silver cutlery, the valuation of one half may be significantly less than the valuation of the full set, and this is something a professional valuer can advise on.

Another type of asset which requires careful consideration is stocks and shares. The valuation of shares in public companies is calculated in a very specific manner, taking into account the opening and closing valuations on the date of death. Valuing shares in private companies is particularly complex, and a chartered accountant should be instructed to ensure an accurate valuation.

Property held in trust is valued for tax purposes in different ways, depending upon the type of trust. An expert, such as a solicitor, should be consulted to ensure that the appropriate trust rules are followed.

Obtaining professional valuations

Where no inheritance tax is payable, for example, because the entire estate passes to a spouse or civil partner, it is not necessary to obtain professional valuations. However, you might still consider doing so for the sake of accuracy, especially if you think inheritance tax will be payable after the second death.

Where only part of an estate is exempt, the non-exempt portion will later be used to calculate the transferable nil-rate band which can be applied to the estate of the surviving spouse or civil partner, for example, if a sum within the deceased’s tax-free allowances passes to a non-exempt beneficiary and the remaining estate passes to a spouse or civil partner. As such, it is worth obtaining professional valuations in these circumstances, even though it will not affect the tax payable immediately.

In any estate on which inheritance tax is due, professional valuations must be obtained. The type of professional required will depend upon the asset in question.

Lifetime gifts

If the deceased made gifts during their lifetime these may also need to be brought back into the account for the inheritance tax calculation.

The general rule is that if the deceased person made a gift within seven years of their death, the gift should be considered for tax purposes.

However, there may be circumstances where a gift made outside of this timescale must also be considered, such as where the deceased retained a benefit from the gifted asset.

The valuation of lifetime gifts will depend upon the date of receipt of the gift, and our solicitors can advise you on this.

Instructing a solicitor

Our solicitors are knowledgeable about and experienced in the tax rules and calculations relating to obtaining probate. We can help ensure that tax is correctly paid, without risking an underpayment or overpayment to HMRC, while taking into account all applicable allowances, reliefs, and exemptions.

It is particularly advisable to instruct a solicitor in respect of any estate where inheritance tax is payable, and our solicitors would be happy to help you decipher the applicable tax laws.